Capital III, Chapter 18 - Part 8

Unfortunately, I think Marx slips from one concept of rate of profit (essentially profit margin), calculated on the laid-out capital, to another, the general annual rate of profit (based on the advanced capital for one turnover) without realising he has done so, or at least making clear that he has done so. As I've demonstrated elsewhere, the condition for a tendency for the rate of profit to fall is rising social productivity, which implies a rise in the rate of turnover, thereby bringing about a rise in the annual rate of profit.

So, when Marx says that the increased number of turnovers produces a greater quantity of surplus value in a year, this is true. It also implies, therefore, a higher annual rate of profit. But, this does not imply a rise in the rate of profit (profit margin) because this greater mass of surplus value has to be measured against a much greater mass of constant capital laid out to produce it.

Similarly, in discussing the role of merchant capital on the general rate of profit, Marx talks about the mass of merchant capital employed. But, again, the general rate of profit (profit margin) is measured against the laid-out capital, yet, when Marx describes what he means by this mass of merchant capital, what he sets out is, in fact, the advanced capital. So, he says,

“But here we assume that its relative magnitude, say, 1/10 of the total capital, is given. This relative magnitude, however, is again determined by the turnover. If it is turned over rapidly, its absolute magnitude, for example, will = £1,000 in the first case, = 100 in the second, and hence its relative magnitude = 1/10. With a slower turnover its absolute magnitude is, say, = 2,000 in the first case, and = 200 in the second. Its relative magnitude will then have increased from 1/10 to 1/5 of the total capital. Circumstances which reduce the average turnover of merchant's capital, like the development of means of transportation, for instance, reduce pro tanto the absolute magnitude of merchant's capital, and thereby increase the general rate of profit.” (p 309-10)

In other words, Marx seems to be using the annual rate of profit as the basis of the general rate of profit rather than the laid-out capital, which is the basis for the general rate of profit he has used previously, in discussing the Law of The Tendency For The Rate of Profit To Fall. There is, of course, nothing wrong with that. On the contrary, for the reasons Marx describes in previous chapters, it is the annual rate of profit which gives an accurate picture, and its the advanced capital which gives the real measure of the capital existing in an economy, not the laid-out capital. The only problem is one of clarity and consistency in presentation.

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